What You Need to Know About FDIC Insurance

I know how hard you work, and I want to make sure that all your hard-earned money that you deposit at a bank stays safe and sound. Last week the mortgage bank IndyMac was taken over by the FDIC because it was no longer solvent, and some bank depositors are going to lose 50% of their money.

But here is what is so sad. No one should have lost one penny.

Those who are going to lose money either did not take the time to learn about the FDIC insurance rules for full coverage, or they assumed that the bank teller who told them their money was safe knew what he or she was talking about. Big mistake. And it happens all the time.

Did you catch the report of the gentleman who had $230,000 on deposit at IndyMac? He was concerned that he might not have full FDIC insurance, but a bank teller had told him it was no problem. She said that even though the FDIC offers full repayment up to $100,000 per account at a bank, all he had to do was open a few different accounts at that bank, each with $100,000 of insurance, and all his money would be safe if anything happened to the bank.

WRONG WRONG WRONG.

The teller couldn’t have been more wrong. So since there are so many who obviously are listening to people who you think know but in fact they do not I decided that I better make sure you have the RIGHT RIGHT RIGHT information concerning FDIC insurance and how it works.

The Rules For FDIC Insurance

The rule is that the combined assets of all accounts that are in one person’s name can not exceed $100,000. It’s $100,000 per depositor per bank. Not $100,000 per account. Now that IndyMac is out of business the gentleman in the story above will get the first $100,000 back. That indeed is fully insured by the FDIC. But the additional $130,000 is not covered by the FDIC insurance program. The somewhat good news for this man is that in this case (which is not usual) the FDIC plans to pay back at least 50% of deposit amounts that exceed the $100,000 limit. So for this man he will get $65,000 of the $130,000 that was not insured that is the good news. The bad news is that for now he is out $65,000 of what he thought was safe money all because he listened to the teller.

This poor man, and all the others (10,000) who have lost money at IndyMac could have avoided this financial heartache if they took the time to make sure they knew the rules. I have said this so many times: What happens to your money directly affects the quality of your life. It doesn’t have an impact on the bank teller’s life, or a financial advisor’s life or an insurance agent’s life. It matters to you, and only you.

Get Busy Taking Care of Your Money

Now many people think that all they can have in one bank is just $100,000 if they are to be insured. However you can have more in certain situations as long as you follow the rules.

1. Accounts in Just One Name

If you have an account(s) in just one name at any one bank, make sure you keep less than $100,000 in total at that bank in just your name. That’s what I do. And please don’t make the mistake of investing $100,000 at Big Bank’s branch in downtown and then another $100,000 at its branch out at the mall, or even in a different state. It doesn’t work that way. The FDIC will say you have $200,000 at one bank. It counts money you have at different branches, no matter what state the branch is in, as being at the same bank. So just open different accounts at different banks.

So to be absolutely clear, as long as the total amount of money you deposit in any number of accounts in just your name at one bank totals less than $100,000 your money is fully insured by the FDIC.

Example:

YOU CAN HAVE

A checking account with $10,000 in it

A savings account with $80,000 in it

A $10,000 CD

--------------------------------------------

TOTAL: $100,000 = Fully insured.

Again you can have as many individual accounts at one bank that you want as long as the total of all those accounts do not total more than $100,000

In addition to insurance for individual accounts, the FDIC also provides separate insurance for any Joint Accounts. A joint account is one that you hold with someone else and you both are equal owners of the money.

The FDIC will fully cover a joint account for up to $200,000, meaning you and your co-owner would be eligible for $100,000 each of full coverage. That $100,000 of coverage you each get for the joint account(s) is in addition to the $100,000 you each also get from the bank for accounts that are in your name only.

Example

YOU COULD HAVE

1. In YOUR NAME ONLY:

A checking account with $10,000 in it

A savings account with $80,000 in it

A $10,000 CD

---------------

Total= $100,000 = Fully Insured.

AND IN ADDITION TO THE ACCOUNTS ABOVE YOU COULD ALSO HAVE

2. In JOINT ACCOUNTS:

A checking account with $30,000 in it

A savings account with $160,000 in it

A $10,000 CD

----------------------

Total insured for this account is $200,000. Fully insured $100,000 per account holder.

Your total coverage at that bank in just your name is $200,000: $100,000 for the money in individual accounts another $100,000 for your half of the money in the joint accounts. Of course the other $100,000 in the joint account is insured under the other joint owners name as well. So it is possible to have way more than $100,000 of FDIC insurance at one bank in cases like this.

Let me give you a few more examples of how FDIC insurance can work

Example

THIS IS ALL AT ONE BANK

1. In YOUR NAME ONLY:

A checking account with $10,000 in it

A savings account with $80,000 in it

A $10,000 CD

---------------

Total = $100,000 = Fully Insured.

2. In your spouses or life partner’s name

A checking account with $30,000 in it

A savings account with $50,000 in it

A $20,000 CD

---------------

Total = $100,000 = Fully Insured.

3. In JOINT ACCOUNTS with you and your life partner or spouse

A checking account with $20,000 in it

A savings account with $160,000 in it

A $10,000 CD

----------------------

Total insured for this account is $200,000. Fully insured $100,000 per account holder.

This would give you and your life partner or spouse a total of $400,000 of FDIC insurance at one bank.

IRA ACCOUNTS

If you have an IRA account at the same bank as your other accounts, the IRA is fully insured by the FDIC up to $250,000. That $250,000 is in addition to the coverage discussed above. Please note that FDIC insurance only covers cash instruments not stocks or mutual funds.

EXAMPLE

1. In YOUR NAME ONLY:

A checking account with $10,000 in it

A savings account with $80,000 in it

A $10,000 CD

---------------

Total = $100,000 = Fully Insured.

2. In your spouses or life partner’s name

A checking account with $30,000 in it

A savings account with $50,000 in it

A $20,000 CD

---------------

Total = $100,000 = Fully Insured.

3. In JOINT ACCOUNTS with you and your life partner or spouse

A checking account with $20,000 in it

A savings account with $160,000 in it

A $10,000 CD

----------------------

Total = $200,000. Fully insured for $100,000 per account holder.

4. IRA

An IRA in just your name with up to $250,000 in it. Fully Insured.

5. An IRA in your spouse or life partners name with up to $250,000 in it. Fully insured.

Total Insured at this one bank:

$100,000 in individual account.

$100,000 in your spouse or life partner’s individual account

$200,000 for both of you in a joint account

$250,000 for your IRA account

$250,000 for your spouses or life partners IRA account

----------------

$900,000 total.

4. TRUST ACCOUNTS and Pay on Death (POD accounts)

If you have any money on deposit at a bank that is part of a trust or is structured as a Pay on Death account the rules for full FDIC insurance can be a bit tricky. The last thing you want to do is take the word of a bank teller who may or may not know the real rules. If you have a trust account or a POD account I urge you to make sure you do you own safety check and understand what is and is not insured. It is too complicated to explain right here but I recommend following the directions below so you know if you are or are not insured by the FDIC.

DO YOUR OWN SAFETY CHECK

To be super safe I recommend everyone go to the FDIC website and take the time to use their Electronic Deposit Insurance Estimator (EDIE).This free tool will show you exactly what is and is not insured in your personal bank accounts. Click the WALK ME THROUGH button at the bottom of the page and you are on your way to knowing exactly how safe your money is.

The bottom line is that the details of what is, and is not, covered by the FDIC insurance program can be very confusing. Take the time to make sure your money is safe. If you find you have money that is not insured move it immediately to another FDIC insured bank.